Facebook May Follow Linkedin

Facebook has gone far beyond the quirky college start-up it once was, with revenue around $800 million last year and profit in the tens of millions, according to a Reuters report. But it could do a lot better, and make its critics far more comfortable, through optional premium memberships like Linkedin Business Model.

The Growth is impressive, said Marc Andresseen – board memeber last year.

“If they pushed the throttle forward on monetization they would be doing more than a billion this year,” said Andreessen, who made the cover of Time Magazine as founder of the world’s first Web browser company, Netscape.

Chasing some Revenue target is very important for any of any company but making its services much more valuable to general members should be a top priority for any online business model. If taken care, revenue achievements will happen automatically.

Understanding the same, Facebook may follow the categorized business model like Linkedin. By segregating membership type Facebook can make the payment more immpressive. Some of features which facebook may consider to implement for Premium Members :

1) Upgraded Storage capacity for Video & Photo upload.

2) Ads free pages.

3) Highest security level for personal information sharing.

4) Multi party chat session.

5) Free Facebook points.

2nd & 3rd option can do wonders for Facebook as there are many business users who would like to have their Fan Club or various other pages to look ads free. They wont mind paying any reasonable amount to opt for this extra feature.

Similarly Security issue towards personal data has become a pain point for Facebook for long time. Implementing the 3rd option facebook not only ensure their members but also zip the lips of their critics.

By all the above manners facebook will earn few extra revenue with promise of better service and upgraded features, if price wont make a big hole in member’s pocket. Also is quit unlikely that Facebook will risk its current member base of 500 million by making the new membership type mandatory.

Paid membership would likely increase Facebook’s per person revenue. Even if you assume that the company gets $10 CPM (cost per thousand ad displays) rates for advertising — which would put it in rarefied company, given that the average rate in the U.S. is $2.48 — how much does the average customer bring in? Divide even $1 billion in revenue by 500 million users and you’ve got … $2 a person a year. Be generous and divide the billion by 300 million users, assuming 67 percent user growth since January 1, and they would still be just over $3 a person a year. It wouldn’t take much to replace that.

Now, heavy users who demonstrate a greater interest in the service would be more likely candidates. How much might they bring in through ad views? If someone uses Facebook several times every day and views 10 ads, the person views 70 ads a week, 3640 ads a year. Revenue for that person would then be $36.40 a year, or about $3 a month. A $5 a month fee would create $24 more a year in revenue than through advertising. The incremental resource costs to deliver benefits would be negligible. Promotional users would likely pay even more.

This would be a freemium business model. Assuming typical conversion rates of 2 percent, and Facebook might expect 10 million paid users with additional revenue of $240 million — close to a 25 percent increase, even for $1 billion in annual revenue.

Facebook would improve its reputation and sharply increase revenue. Not a bad result for a relatively simple change.